2020 Foreign Exchange forecast 3 April

covering USD Index, EUR/USD, GBP/USD, USD/JPY, GBP/EUR

USD Index	LT-M	MT-W	ST-D
100.68 (99.44)
Trend	↑ (↑)	↑ (↑)	↑ (↓)
% Risk Weight	56 (54)	63 (55)	42 (55)
Allocation	50% (50%)

Every time frame is trending up although the MT Weekly shows potential bearish divergence. We stay on a central bank type risk approach keeping 50% cover. The dollar still looks vulnerable in spite of these continued upwards gyrations. No Change.

Previous 27 March: Conclusion: All Dollar risk positions to be reduced to 50% with immediate effect. Just execute. In a matter of months, the world has changed and our risk assessment must be based on a more holistic approach to managing currency risk. Things are not equal and many businesses large and smaller cannot safely predict an accurate transaction exposure as economic risk has become such an unpredictable element. The still unprecedented but expected ‘QE to infinity’ will make currency risk management probably less relevant during the coming 12 months or longer, because the whole space is changing and everyone in is survival mode. We see a clear change for instance in the Dollar Swiss with the possibility that the CHF which has been the strongest currency of all for the past 50 years may even start to weaken. What may trigger this is unknown but technically we can see signs in that direction. Explore the USDCHF chart below and draw your own conclusion.

EUR/USD	LT-M	MT-W	ST-D
1.0794 (1.1000)
Trend	↓ (↑)	↓ (↓)	↓ (↑)
% Risk Weight	33 (35)	32 (38)	42 (35)
Allocation	50% (50%)

All time frames are down again in this tweet driven market. Similar to the Dollar index, the weekly timeframe may show bullish price to risk weight divergence of Euro trends back up again. In 5 weeks time the volatility has increased to levels not seen for a very long time. Up 6%, Down 8%, up 5% and down 4%. hence the cautious approach from a a price level that was the average since August last year. No Change.

Previous 27 March: Reduce expected long dollar transaction exposure by 50% to half. Our preference from a technical risk weight perspective looking at our set of tools, with more uncertainty than ever and with much intervention from central banks, is to weather the storm until dust settles. The storm in fact may not even have begun. The huge debt burden which is now being created out of thin air, where European tax payers (especially Germany and The Netherlands) will have to foot the bill for servicing a future recovery of the hardest hit countries (Italy, Spain and others), makes it extremely difficult to predict an outcome that can be measured in fiat currency. We would almost say that risk right now should be covered partially against real money, gold and silver, but that now seems a difficult choice too because cover must be taken through paper derivatives which are likiely to become decoupled from physical if that hasnt already happened in the past few weeks. The world we have created during the past 50 years is no longer that same world which means that any perceived potential risk must be taken off the table.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.2250 (1.2250)
Trend	↓ (↓)	↑ (⇵)	↑ (↑)
% Risk Weight	54 (65)	30 (17)	80 (35)
Allocation	50% (50%)

GBP remains more suspect between timeframes and the developing risk weight trends. But it is the same story reducing risk by keeping only half the transaction exposure covered.

Previous 27 March: Conclusion: Reduce Long dollar transaction exposures to 50%. This follows the general underlying risk from an unpredictable outcome of a necessary reset of the financial system as we know it today (Also read our Precious metals section). What happens to Fiat currency worldwide is anyone’s guess in this war against a potential worldwide economic depression. In terms of currency risk there is much more below the surface that could impact how individual economic blocks will or can perform in the aftermath of the present general slowdown.

USD/JPY	LT-M	MT-W	ST-D
108.45 (108.80)
Trend	↑ (↑)	↑ (↑)	↓ (↓)
% Risk Weight	52 (48)	65 (57)	43 (82)
Allocation	50% (50%)

All major Dollar pairs show potential MT weekly price to risk weight bearish dollar divergence. International currency markets are behaving naively and with higher volatility across the board. It looks like we will stay on a very defensive approach for at a least a few more weeks. No Change.

Previous 27 March: We generally recommend a reduction of USD receivables exposure cover by 50% until the dust of this massive international turmoil settles. This pair also is too volatile to allow for a decisive risk management approach and the technical picture changes almost weekly due to these wild price girations.

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GBP/EUR	LT-M	MT-W	ST-D
1.1340 (1.0720)
Trend	↓ (↓)	↑ (↑)	↑ (↑)
% Risk Weight	60 (70)	30 (17)	90 (45)
Allocation	50% (50%)

Long GBP exposures to remain covered at 50%. Last weeks strong 5% rally looks nearly finished and an understandable reaction to the near 15% drop between mid Febr and mid March. The new economic reality makes is very possible that the UK has drawn a short Brexit straw, at least for the time being. No Change.

Previous 27 March: We already took out some long GBP exposure cover 2 weeks ago at a favourable level and the transaction hedge recommendation on GBP receivables remains at 50%. Subject to a different outlook due to limited activity for certain cyclical companies who might want to just transact at spot as required.